The former auditors of collapsed bank BCCI have settled a six-year-long $11bn liquidators' claim against them by paying just $195m.
Lawyers close to the deal estimate that at least a quarter of the $195m ($50m) will have to pay the fees of the liquidators and their lawyers Lovell White Durrant. Legal fees over the six years – shared between Lovells and counsel – are likely to top $100m. Liquidators fees will account for at least another $240m.
But liquidators and lawyers have managed to recover over $4bn for creditors, representing 46 per cent of the amount creditors lost in the collapse.
Following BCCI's 1991 collapse, the liquidators, Deloitte & Touche and Baden & Baden in Luxembourg, sued Price Waterhouse and Ernst & Whinney, which were auditors of the bank at different times. They also sued the Abu Dhabi government which had a majority stake in the bank.
Russell Sleigh at Lovell White Durrant advised the liquidators. Price Waterhouse instructed Herbert Smith partners Sonya Leydecker and Christa Band while Ernst & Young (as it now is named) used John Turnbull at Linklaters. Paul Phippen at Macfarlanes advised Abu Dhabi.
Under last week's settlement signed in Luxembourg, Price Waterhouse will pay $95m, Ernst & Young $30m and Abu Dhabi $70m. The liquidators originally claimed $3.4bn against Ernst & Whinney and £8bn against Price Waterhouse.
A $1.8bn chunk of the claim against Ernst & Whinney was struck out in February 1997 but was reinstated by the Court of Appeal a year later. A further $800m of the claim was struck out in March this year.
It is understood that around 18 months ago, while Ernst & Young was litigating, lawyers at Price Waterhouse's Herbert Smith had begun talking to Lovells about a settlement.
Herbert Smith's team knew they would not be able to settle without getting Ernst & Young to contribute, so Linklaters' Turnbull was approached this April and agreement in principle was reached. Turnbull said the settlement arose mainly because both sides got tired: “It was turning into a WWI-style battle of attrition. Both sides were lobbing some pretty heavy artillery at each other and were suffering heavy losses.”
He explained: “The liquidators realised we weren't going to be a pushover and that it was going to cost literally tens of millions of pounds to take it to trial. The trial wasn't scheduled until 2005.”
He said Ernst & Young's payment of $30m was less than it would have cost the firm to fight the case to the end.